Let’s explore how leverage plays a role in the forex market.
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Forex broker leverage explained
What other markets can you trade in using leverage?
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What is the margin in forex?
Here is an example to illustrate the margin level meaning in forex.
If you use 10x leverage, your margin will be 10% of the overall size of your position. For a $500 trade, the margin is $50. However, with 20x leverage, the margin is 5%. For instance, a $1,000 position will have a margin of $50.
10x leverage |
20x leverage |
|
Overall position | $500 | $1,000 |
Margin | $50 | $50 |
Margin percentage | 10% | 5% |
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Margin call in forex trading
If the trader fails to do so, the broker closes the position automatically, requiring the trader to take the loss.
For traders concerned with potential losses, there are strategies you can use to prevent massive losses. For instance, implementing a stop to your position if a price moves against you or utilising price alerts and limit orders.
How leverage affects your market exposure
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Leveraged trading (1:20) | Unleveraged trading (1:1) | |||
Outlay | $1,000USD | $1,000USD | ||
Exposure | $20,000USD | $1,000USD |
How to use leverage successfully on the forex market
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Choose the right amount of leverage
Most seasoned traders will use between 10x and 20x leverage. This amount allows them to trade without excessive risk while targeting reasonable profits.![](https://tmgm-cdn.oss-cn-hongkong.aliyuncs.com/marketing/front/public/images/cfd-trading/understanding-forex-leverage-and-margin/step-2.webp)
Test your strategies
With platforms like MetaTrader 4, you can test-drive strategies to see how they work in real market conditions with a demo account.![](https://tmgm-cdn.oss-cn-hongkong.aliyuncs.com/marketing/front/public/images/cfd-trading/understanding-forex-leverage-and-margin/step-3.webp)
Focus on risk management
Risk management tools, like stop-loss orders and position sizing, can prevent losses while using leverage.TMGM Trusted high-leverage forex brokers
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Frequently asked question
For instance, with 1:1000 leverage, you can control $50,000 with only $100. However, if a $50,000 position loses $1,000, you will owe $900, which you will need to pay back even if you do not have $900 in your account.
For example, if a trade nets a profit of $0.0020 (20 pips), and you invest $10,000, your profit is $20. However, if you use 10x leverage, your profits will be $200.